Lederer v. McGarvey

Background

On March 20, 1920, a federal permit to sell non-beverage distilled spirits and wines was issued to a man named O’Kane on a surety bond called Form 738. While the permit was active he sold whiskey to a pharmacy that had no permit and failed to keep required sales records. The government assessed a differential tax of $1,098.72. O’Kane paid that tax under protest to Lederer, the Collector of Internal Revenue, and sued the Collector to recover the money. Lederer admitted O’Kane’s claim but counterclaimed on the bond for $2,000, arguing the full penal sum was due.

Reasoning

The Circuit Court of Appeals certified the same legal questions that arose in another case about whether permit bonds like Form 738 are forfeiture bonds (allowing recovery of the full penal amount on breach) or merely indemnity bonds. The District Court had held the bond amount was a limit not a measure of liability and ruled for O’Kane. In briefs filed here, Lederer’s counsel conceded that, in a suit to recover taxes, a collector is not acting for the United States in a way that lets him assert the United States’ claim as a counterclaim. Because of that concession the Court concluded there was no need to answer the certified questions.

Real world impact

The Supreme Court dismissed the certificate without deciding whether Form 738 is a forfeiture or indemnity bond. The lower-court judgment for O’Kane stands, and the Court left the broader bond question unresolved for future cases.